Financially-strapped Cyprus has secured a €10 billion ($13 billion) bailout package from its European partners and the International Monetary Fund in a bid to prevent the country from entering a bankruptcy that could restart the region’s debt crisis, officials said early Saturday.
In return for the bailout, Cyprus will trim its deficit, significantly shrink its banking sector, raise taxes and privatize state assets, said the Netherlands’ Jeroen Dijsselbloem, president of the Eurogroup meetings of the 17-nation eurozone’s finance ministers.
In addition to the usual measures imposed, Cyprus’ bailout package includes a rare ‘one-time levy’ on money held in bank accounts in the country. People with less than €100,000 in their Cypriot bank accounts will have to pay a one-time tax of 6.75 percent, those owning more money will lose 9.9 percent.
According to Dijsselbloem, the measure will be carried out early next week and is expected to net €5.8 billion in additional revenues, thereby reducing Cyprus’ financing need.
Analysts and economists have warned that making savers take a hit threatens to undermine confidence in other weaker eurozone economies and might possibly lead to bank runs. Despite the risk, Cypriot authorities have already taken action to ensure the levy can be collected.
Cyprus is the fifth country to receive eurozone assistance since the bloc’s financial crisis began to unfold in earnest nearly three years ago.